JB HI-FI EXPERIENCES A "DICK SMITH EFFECT"

Yesterday's better than forecast FY2016 result for JB Hi-Fi is down to a strong year end and Dick Smith's demise. However, despite a good start, FY2017 probably won't benefit from the "Dick Smith effect".

The key elements of the FY2016 result (to end June 2016) were: total sales +8.3% to AU$3.95 billion; comparable sales +5.4%; EBIT +10.1% to AU$221.2 million; and NPAT +11.5% to AU$152.2 million.

JB HI-Fl CEO, Richard Murray, says: "We had a great finish to the financial year and are proud to deliver both net profit and earnings per share up 11.5%. Particularly pleasing was how we cycled a strong June in the prior year, with good sales driven by tax time buying."

JB HI-Fl HOME stores continue to roll out and, although making up less than a third of the 194 store total. The 59 current ANZ HOME sites will however increase to a current ceiling of 75.

Online sales were +35.8% in FY2016 but still represented just 3% of total sales (2.4% in FY2015). The New Zealand website is being upgraded to the same platform as Australia.

This arm is not only on track to achieve its "longer term aspirational sales target" of some AU$500 million per annum, but Richard Murray also goes so far as to highlight this division as "a key driver of our future growth".

To break down the performance of the two main territories at year end FY2016:

AU$m

Australia

FY2015

FY2016

Sales

3,456

3,739

Gross Profit

763

826

Gross Margin

22%

22%

EBIT

199

220

Total Australian sales were +8.2% and comparables +5.5%.

NZ$m

New Zealand

FY2015

FY2016

Sales

211

235

Gross Profit

38

43

Gross Margin

18%

18%

EBIT

1.6

1.0

The Kiwi result with sales +11.2% and comps +4.4% was driven mainly by the new Queensgate store and by strong first half demand for 3rd party prepaid content cards, without which NZ sales growth would have been +7.2% and comps +0.7%.

Looking towards FY2017

Moving to the current year (FY2017), at July 2016, consolidated total sales growth was +13.4% (+7.6% last year), while consolidated comparable sales growth was +9.5% (+5.7% last year).

All of which looks good for now. But, while Richard Murray admits that Dick Smith closing had a positive effect on JB Hi-Fi's second half of FY2016 which should continue into the first half of FY2017, this factor will eventually "moderate".

In FY2017 JB HiFi nevertheless expects further growth total sales of around AU$4.25 billion (+7.6% on FY2016).

Another unknown of course is whether or not JB Hi-Fi will end up as the owner of The Good Guys, which at this stage is still looking at a range of options including an IPO.